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Choosing the Best Savings Account for Your Child

What Is a Child Savings Account?

Kids are never too young to learn about money. A kids’ savings account can be a great place to hold cash gifts and money they’re setting aside for financial goals, like buying a new gaming system or purchasing their first car. Kids’ savings accounts also earn interest, allowing their money to grow at a faster rate. You and your child can compare account features together to find the best savings account for their needs.

Types of Child Savings Accounts

A minor technically can’t open a savings account on their own. As their parent, you can choose between the following options:

Joint Account

You and your child are both named as joint owners of the account. This means you’ll own the funds equally. You can link it to your checking account, making it easy to transfer funds as needed. Your bank might also allow you to set withdrawal limits and receive notifications whenever your child takes out money.

Custodial Account

The account is owned by the child, but you manage it for them until they come of age. You can make deposits and withdrawals, as long as the money you take out is used to benefit the child. This structure is common among kids’ brokerage accounts and college savings accounts.

Best Types of Savings Accounts for a Child

Just like savings accounts for adults, you’ll typically see kids’ accounts set up in one of two ways:

Traditional Savings Account

This is a typical offering from banks and credit unions. Your child will earn interest on their savings, which is expressed as the annual percentage yield (APY). As of January 2024, the national rate on a standard savings account was 0.47%.

High-Yield Savings Account

APYs can be much higher with a high-yield savings account—and online banks usually offer the best rates. As of February 2024, some were as high as 5.25%. Fees and minimum balance requirements also tend to be lower (or nonexistent). Like a traditional savings account, rates are variable and fluctuate with the federal funds rate.

How to Choose the Best Savings Account for Your Child

Kids’ savings accounts vary from one financial institution to the next. Comparing different banks and account options can help steer you in the right direction. Here are some important things to think about when looking for an account:

• APY: Shopping around for the best interest rate can help your child’s savings work a little harder. Online banks typically offer the most competitive APYs on savings accounts.
• Monthly fees: Some banks may charge a recurring maintenance fee to keep the account active.
• Minimum balance requirements: You might be charged a fee if your child’s savings account balance dips below a certain amount. You may also be required to make a minimum opening deposit.
• Online banking access: A user-friendly mobile banking app can be a huge selling point, especially for teenagers. At the very least, you’ll want access to basic online banking features.
• Parental controls: This can help safeguard your child’s savings. Some banks make it easy for parents to monitor and manage their child’s spending, while others may feel less flexible.

How to Open a Savings Account for Your Child

Opening a kids’ savings account is relatively easy. You’ll likely need the following information to get started:

• Your child’s Social Security number and date of birth
• Your date of birth
• Your address and basic contact information

You may have to meet other requirements, depending on the bank. For example, some might require the parent to be an existing account holder. You may also have to make a minimum opening deposit. Read the fine print to make sure you understand the criteria.

Frequently Asked Questions

Do I Have to Pay Taxes on My Child’s Savings Account?

Yes, interest earned on a child’s savings account is generally subject to taxes. Consult a tax professional for specific advice.

What Happens to My Kid’s Savings Account When They Turn 18?

When your child turns 18, they typically gain full control over the account. The specifics can vary depending on the type of account and the bank’s policies.

Should I Use a Savings Account for College Tuition?

A savings account can be a good place to start, but you might also consider other options like 529 plans, which are specifically designed for education savings.

The Bottom Line

A kids’ savings account can be a great way for your child to save for the future. It gives them an opportunity to earn interest and learn how to manage their money. Parents also have some degree of control over the account.

It’s always a good time to talk to your kids about financial literacy and credit health. When they turn 18, they can check their credit score and credit report for free with Experian.

Contact O1ne Mortgage for Your Mortgage Needs

If you have any mortgage service needs, don’t hesitate to call O1ne Mortgage at 213-732-3074. Our team of experts is here to help you with all your mortgage needs.

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